• February 17, 2009
  • By Jessica Tsai, Assistant Editor, CRM magazine

Newegg Takes the Lead in Customer Satisfaction

As President Barack Obama signs off on the $787 billion stimulus package today, only time will tell whether this exorbitant amount of money will save the economy. For the retail industry, at least, the stimulus will hopefully give consumers the financial -- and perhaps emotional -- boost they need to open up their wallets. The University of Michigan and partner Foresee Results today released their 2008 fourth quarter results for the American Customer Satisfaction Index (ACSI) on e-commerce (i.e., online retail, online travel, and online brokerages) and offline retail. For the first time in three years, customer satisfaction in e-commerce dropped on ACSI's 100-point scale, from last year's 81.6 to 80.0 this year, while offline retail actually improved by a full point (from 74.2 to 75.2).

Historically, e-commerce and retail have enjoyed very strong customer satisfaction scores, so the challenge now is to maintain these numbers, especially given the added pressure (and costs) of a recessionary economy. Though satisfaction may be high, retailers continue to struggle simply because consumers are more selective about how and where they spend -- and when they do open their wallets, they're spending less.

[For more on CRM amid the economic downturn, see the February 2009 edition of CRM magazine, The Recession Issue.]

"We have this bizarre behavior right now," says Claes Fornell, head of the ACSI. "When times are good, you [should] put aside some savings for a rainy day. We didn't do that -- we did the opposite. When times are bad, you're supposed to use your savings and ride out the storm. Now, we're doing the opposite again because we don't have savings, and we put the economy in an even deeper hole."

Even if they wanted to help spend the economy back to health, consumers are hampered by concerns about the future and the inclination to be more conservative with what little they have, says Larry Freed, president and chief executive officer of Foresee Results. Whether it's putting more money in people's pockets through tax breaks or creating more jobs, consumers need the means before they can make the purchases.

The main reason e-commerce is declining in satisfaction is primarily due to the low satisfaction among online brokerages, which dropped 6.4 percent from 79 to 74. The finding was not surprising, Freed says, stating matter-of-factly that "when we see our portfolios shrinking at record paces, we're not in a good mood."

For online retail alone, the damage was far less severe, with a drop from 83 to 82. Electronics retailer Newegg took first place this year, but the top three leaders in e-commerce overall remained consistent:

  • Newegg...........................88, up from 87 in 2007;
  • Amazon.com....................86, down from 88; and
  • Netflix.............................85, up from 84.

Online auction retailer eBay exhibited the most disconcerting numbers, dropping from 81 to 78. "They're facing more competition," Fornell observes, particularly as retailers continue to compete on price, giving consumers and sellers less incentive to actively participate online on sites such as eBay. "It looks like auctions are not as popular as they used to be a few years ago," he says, adding that there may be deeper issues -- such as a deterioration in the customer experience -- behind the company's declining financials. (In January, eBay reported $2.1 billion in revenue, down 7 percent from 2007.) "For [auction] sites like [eBay] to work, you have to have both sellers and buyers," he says. "Otherwise nothing's going to happen."

E-commerce overall, however, still maintains a strategic advantage over its brick-and-mortar counterpart, namely because of the convenience, but also due to what Freed believes is the most important factor -- a low switching cost. "I can clone myself [online], open two browsers," Freed says, rather than the offline alternative of investing time and resources traveling to various locations. With brick-and-mortar outlets, Freed adds, there's more risk involved with each investment: "I may find what I'm looking for, I may not." For that reason, the Web becomes a favorable alternative, as it offers more convenience, consistency, and freedom of choice.

Though ranking below online retailers, offline retailers still maintained relatively high scores in the latest report:

  • Barnes & Noble.........................83, same as 2007;
  • Costco Wholesale Corp...............83, up from 81;
  • Nordstrom................................80, same; and
  • Kohl's Corp...............................80, up from 79.

Whereas the key to retail a few years ago was, as Freed puts it, "location, location, location," the online channel has completely eradicated that strategic advantage. Nevertheless, he adds, brick-and-mortar stores will continue to exist, if only for three main consumer motivations:

  • the need to touch and feel a product;
  • the immediacy of owning a purchase; and
  • the money saved on shipping (a factor, however, that is diminishing in impact as "free shipping" offers are becoming a popular tactic among online retailers, a move that experts predict will eventually become commonplace).

What Freed says he noticed this holiday season was the increased usage of smartphones in retail stores as consumers look up product specifications and reviews while shopping. The next step for a retailer, then, is to ensure that the site consumers are navigating is its own. "If you're Target, you don't want [consumers] going to Amazon[.com] to get product reviews," Freed says.

Still, at the end of the day, Fornell says, the real competition in retail isn't going to be between online and offline. For one thing, many offline retailers already have an online presence. "The marketplace is getting so complex now that you have to fight wars everywhere," Fornell says. "I think the winners will be those that figure out the best way to combine an online and brick-and-mortar presence, and how they funnel people from one to the other," he says. Multichannel touch points and managing these multichannel interactions is the new game.

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

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